Monday, February 25, 2013

George Osborne's economic extremism

When it comes to criticising George Osborne it is very difficult to know where to start. Perhaps the best place is his background? 


 Background

It should be quite clear (to anyone that is not a die-hard Tory tribalist) that George is unfit and unqualified for one of the most important jobs in the UK economy. He has a degree in History, some private sector experience of folding towels and simple data entry. He had a short and unsuccessful stint as a journalist before joining the Conservative party Research Department in 1994, establishing himself as a career politician.

He was a speechwriter for William Hague (the first Conservative party leader in history not to serve as Prime Minister) and he was retained as a speechwriter and adviser to Iain Duncan Smith and Michael Howard (the second and third Conservative leaders never to serve as Prime Minister). 


He then became a close political ally of his Bullingdon Club chum David Cameron. He was Cameron's campaign manager for the 2010 election, the fourth consecutive Tory leader to have failed to establish a Parliamentary majority, despite the fact that the UK economy and the ruling Neo-Labour party were in absolute chaos. During his time at Conservative Central Office the party has failed to win a Parliamentary majority in four consecutive General Elections.

In 2001 he was parachuted into the Tory safe seat of Tatton. Within years he became involved in the Parliamentary expenses corruption scandal, using public funds to fund his own personal property investments. As with so many other MPs, including his opposite number, shadow chancellor Ed Balls, he escaped punishment for his brazen abuses of the Parliamentary expenses system.

The only things that seem to qualify him for the position he holds is that he is friends with the Prime Minister David Cameron and that he has been kicking around in the Tory party for a couple of decades, by many measures the least successful period in the entire history of the UK Conservative party. He has risen to the top of a Tory party that is bereft of talent and competence. He certainly hasn't risen because of any noteworthy achievement in the private sector or public service, neither has he risen for his economic expertise, of which he seems to be desperately lacking.


Criticism

In this section I'm going to outline some of the many criticisms of George Osborne; identifying some of the many people and institutions to have criticised George Osborne's stewardship of the UK economy. I'll start off with my own extensive criticisms before moving onto to list some of the others.


Another Angry Voice

One of the strongest indicators of Osborne's lack of economic expertise is his tendency to make economically illiterate claims. Either these claims come about because he genuinely doesn't understand the very basics of economics, or they come about because he assumes the public are so economically illiterate that the absurdity of his misleading justification narratives will pass unnoticed. Osborne's pronouncements on the economy (his excuses and justification narratives) paint a picture of a man that is stuck in an extremely limited worldview of barely conceived libertarianism, supported by little more than confirmation bias. This worldview is illuminated by the fact that he tends to cherry-pick any data that can be worked into the narrative that his policies are succeeding. To give a couple of examples:

Osborne often returns to the narrative that record low prices in the UK bond market represent unprecedented levels of confidence in his fiscal austerity agenda, rather than simply being the result of unprecedented monetary policy (sustained 300-year low Bank of England interest rates and £375 billion in Quantitative Easing cash distorting the bond market). This conflation of fiscal policies and monetary outcomes is unquestionable example of economic illiteracy. 

Another example of cherry-picked data based economic illiteracy, is his talking up of stock market performance as a key economic indicator. The problem with using share prices to estimate economic health is that if the majority of corporations are using tax-havens and transfer pricing to avoid UK taxation (98 of the 100 FTSE100 companies use tax haven based subsidiaries), the more growth there is in the corporate sector, the greater the flow of wealth out of the UK economy! Tax-dodging is rife, meaning that this inflation of corporate wealth does not come with increased tax revenues. In fact George Osborne has been slashing corporation tax and creating tax-loopholes in order to divert ever more cash into the re-inflation of the corporate bubble at the expense of his own tax revenues. The greater the expansion of the corporate sector under this "low tax, lax tax collection" regime, the more problems Osborne is going to face in balancing the budget deficit.

Not only is it demonstrable that Osborne is unfit to be Chancellor of the Exchequer from his lack of relevant experience and the economic illiteracy of his pronouncements on the state of the economy, it is also apparent from the consistent failure of his ideologically driven economic policies. Osborne and so many blue tinted Tory party tribalists resort to their tiresome excuses, the lamest and most oft repeated being that "Labour wrecked the economy". OK, lets assume for a moment that the Great Neoliberal Lie is true, and that excessive state spending, not financial sector mismanagement and corruption created the economic crisis. This narrative still doesn't explain how in 2010 George Osborne and his neoliberal economic wonks at the Office for Budget Responsibility (OBR) were predicting 2.6% growth for the year 2012, yet Osborne's policies have led to negative economic growth of -0.1% for the entire year (a year in which the UK hosted the world's most prestigious and lucrative sporting competition). How are Labour to blame for this spectacular economic miscalculation from George and his team? Clearly they are not. In a previous article I demonstrated how naive "Osbornomic" assumptions about fiscal multipliers are demonstrably to blame for this flatlining of the UK economy.

Right, now we're past some of my major gripes with "Osbornomics" lets move on to see what other people and organisations have been saying:


Ed Balls

Firstly, lets begin with someone you would expect to be a vocal critic of Osborne; his political adversary, the aforementioned shadow chancellor. Ed is hardly what you'd call an economic genius, in fact he comes across as nothing more than a rather pompous political figure suffering from a bad case of bloated self-importance. When Osborne came to power, Ed set the Labour economic narrative at an unwavering mantra of "the Tories are cutting too hard and too deep". 

After 33 months of "Osbornomics", the sustained lack of economic growth demonstrates that Ed Balls was essentially right. This is a catastrophe for the Tories because "economic competence" is one of the very few public perception indicators where the Tories have a long historic advantage over the Labour party. Osborne's mismanagement of the economy has led to the quite frankly astonishing situation that Labour have completely overturned this public perception of Tory economic competence. The polls now show that Ed Balls and George Osborne are virtually neck and neck on public trust, with Balls actually eking out a slight advantage. What makes this shift in public perception so astonishing is the fact that it has come despite the Labour party presiding over the most catastrophic economic collapse, within the living memories of the vast majority of the British population. Osborne's inept management of the economy has led to the incredible situation where a clearly limited political clogger like Ed Balls actually looks savvy and competent in comparison.

The public

It is already clear from the decline in public trust, that Osborne is not popular with the public. In fact polls repeatedly show that he is by far the least popular Conservative minister, quite an achievement in a government stuffed with odious and highly unpopular characters such as Iain Duncan Smith, Eric Pickles, Michael Gove and Jeremy Hunt. It is quite clear from the polls that Osborne has become the biggest liability in the Conservative government. Not only are his economic policies failing badly, he has also introduced massively unpopular legislation such as the pasty tax, the static caravan tax and the 5% income tax cut for millionaires. His economic strategies have been described by members of his own party as "back of a fag packet stuff".

Osborne is rightly considered to be the worst Chancellor of the Exchequer in at least 100 years by an ever growing percentage of politically aware people.


Max Keiser


For those of you that are unfamiliar with Max Keiser's work; he is a man that has done more to popularise economics reporting than probably any man since the dawn of the television age. Max is a right-wing capitalist libertarian, the kind of guy that you would expect to support the Tory party, and approve of a man like Osborne that often talks up his libertarian credentials. However, Max has an absolute loathing for corruption and incompetence. Max has lambasted George Osborne countless times, including calling him a "bare faced liar" and a "shameless exploiter of public economic illiteracy".

It seems that one of the things that winds Max Keiser up the most is people who claim to be libertarians, but are actually more like adherents of Ayn Rand's lunatic pseudo-philosophy of pure self-interest and unrestrained greed. I'd put George Osborne firmly in the category of Randian neoliberals, those that treat economics as a matter of ideological certainty, rather than as a "soft-science" that is subject to interpretation and change.

David Blanchflower


I'm not really a great big fan of David Blanchflower, given that he is a die-hard Quantitative Easing fanatic (the Bank of England's own research demonstrates that it redistributes wealth from ordinary workers, savers and pensioners to the uber-wealthy minority). However, despite our differences over QE, our opinions align very closely when it comes to the failure of George Osborne's ideological austerity experiment. Blanchflower is one of the few mainstream media pundits to have picked up on the fact that Osborne's catastrophically inaccurate fiscal multiplier assumptions are responsible for the current economic stagnation (a point I've been banging on about since October 2012). He stated as much in an article in late January entitled "George Osborne is destined to be remembered as the most inept chancellor in British history".

 Vince Cable

Vince Cable is regarded by many as some kind of economic sage, because he was one of the very few politicians economically literate enough to forewarn that the "easy credit bubble" was going to collapse. In my opinion he's more of a lazy optimist than a rigorous economic thinker, he's always chuntering on about "responsible capitalism" as if huge financial behemoths can simply be persuaded to act with a social conscience akin to the religiously motivated social progressives of the early industrial revolution (Cadbury's, Bourneville, New Lanark, Rowntree's, Saltaire...). This is fantastical stuff, the only way that gigantic multinational corporate entities could ever be reined in would be through regulations and forced breakups of the too-big-to-fail, moral hazard brigade.

Vince is right about one thing though, his criticisms of George Osborne's economic strategy (or complete lack of it) are spot-on. In early 2012 a letter from Cable to George Osborne and David Cameron was leaked to the press.

Cable's letter complained of a dire lack of strategic thinking, here are a couple of quotes:

"there is still something important missing: a compelling vision of where the country is heading beyond sorting out the fiscal mess; and a clear and confident message abut how we will earn our living in future "
"we must lay out a strategic vision for where our future industrial capabilities should lie, and how to deliver it."
Nick Clegg

Vince Cable is far from the only member of the current coalition cabinet to have criticised George Osborne's stewardship of the economy. In early 2013 the deputy Prime Minister admitted that the coalition had made a terrible economic mistake in slashing capital spending. Here's what he said.
"I think we've all realised that you actually need, in order to foster a recovery, to try and mobilise as much public and private capital into infrastructure as possible."
This is quite an astonishing admission. What Clegg is saying is that that there was a spirit of collective ignorance of economic history in the coalition cabinet, that has now passed. The lessons from history are absolutely clear that boosting spending on infrastructure projects is a tried and tested method for stimulating economic recovery. The most famous example being the "New Deal" in the US, but the post-war recovery in the UK actually makes an even more compelling case.

What Clegg admits is that the entire coalition cabinet had been so enraptured with Osborne's ideological austerity agenda, that it's taken them almost three years to recognise these obvious lessons from history.

At least Clegg is now prepared to admit that the government that he is part of, bears the burden of responsibility for allowing Osborne to push on with his catastrophic ideological austerity experiment. Osborne recognises no such thing, and continues to insist that the economy is in fine shape, despite negative economic growth,, a looming triple-dip recession, numerous, record trade deficits, inflation soaring above average wage rises for 33 consecutive months and the loss of the AAA credit rating for the first time in over three decades.


Boris Johnson

Criticism from other politicians is not limited to the Labour opposition and the Lib-Dem members of the government. The Tory Mayor of London has also waded in to give his old Bullingdon Club mate a kicking. In early 2013 he urged Osborne to drop the "hair shirt agenda" and to "junk the rhetoric of Austerity". This is hardly a radical change of tune from Boris, he's been making similar noises since at least July 2012 (when I wrote about his agenda).

Boris clearly isn't as daft as he looks, the harmless floppy haired buffonery is actually a carefully crafted public persona. I'm convinced that he's angling for leadership of the Tory party, and by getting his boot in early, he's demonstrating to his fellow Conservatives and the public alike, that he's a true blue Tory man, but one with an alternative to Osborne's catastrophic ideological austerity experiment.


The CBI & BCC

Remember when that bunch of British so-called "business leaders" wrote that idiotic letter to the Telegraph cheerleading for Osborne's austerity experiment? Remember when right-wing business groups like the CBI and the BCC were cheering Gideon Osborne to the rafters back in 2010?

Well they've changed their tunes now, they still cloak their statements in pro-Tory language but the message is absolutely clear, that they now want increased government spending and investment, rather than a continuance of the obsession with cost-cutting.

You would have thought they'd be ashamed to make such a volte face, but it is absolutely clear that our so-called business leaders are a bunch of shameless bastards from the fact that British FTSE 100 directors awarded themselves a whopping average pay rise of 49% in 2011 while the rest of the workforce got a measly 1.4% increase (miles below the 5% rate of inflation that year).

The CEBR


Another right-leaning organisation called the Centre for Economics and Business Research have made a number of statements which, although thickly coated in the expected pro-Tory patina, clearly demonstrate the fact that they accept that Osborne's ideological austerity experiment is failing. In January 2013 the correctly predicted that the UK would be stripped of the AAA credit rating (hardly a remarkable prediction, since the UK's AAA rating was put on "negative outlook" by all of the three ratings agencies at the back end of 2012).

What is worse, is that they are now claiming that Britian's soaring budget deficit will not begin to fall for at least ten years, making an absolute mockery out of Osborne's intention to eliminate the structural deficit in a single parliament. Even his right-wing cheerleaders admit that thanks to Osborne's economic mismanagement, the deficit won't begin falling until well into the third post-crisis parliament, if not the fourth.

When right-wing economic foundations are predicting a lost-decade of low growth and rising debts, it's awfully bad news for a Chancellor that staked his reputation on rescuing the UK economy and eliminating the structural deficit over the course of one single parliament.


The OECD

The Paris based OECD like to describe themselves as the world's leading economic thinktank, however in February 2013 they pretty much admitted that they've been backing a dead horse in George Osborne. 

The OECD were guilty of ceaselessly promoting Osborne's austerity experiment all the way from 2010 through to the beginning of 2013, but then they suddenly seemed to wake up and recognise what a spectacular mess Osborne's been making. They have now joined the vast chorus of people and organisations calling on Gideon to slow down the rate of cuts, begin investing more in infrastructure and to focus more attention on creating employment and on protecting the poorest and most vulnerable from the effects of austerity.

The Credit Ratings Agencies

George Osborne repeatedly talked up the importance of protecting Britain's AAA credit ratings from the credit ratings oligopoly. To stake your reputation on the opinions of three such companies would seem to be bold to the point of foolishness. Remember these are the guys that that gleefully stamped toxic sub-prime junk with AAA ratings for the world's financial; institutions and pension funds to mindlessly consume. What's even worse is that they collected vast fees from the banks that created these toxic "financial weapons of mass destruction", a stunningly obvious conflict of interests.

Anyhow, the writing had been on the Credit Ratings wall since the back end of 2012, when UK debt was put on "negative outlook" by all three of them (Moody's, Standard & Poor, Fitch) and then on 22 February 2013 the UK was officially downgraded by Moody's, the first time the UK has dropped out of the world's elite group of nations (the ones rated as super-safe investments) since 1978.


What makes this so much worse is the way he ridiculed and chided Labour when the UK was put on "negative outlook" in the wake of the global financial crisis. Despite experiencing the worst economic collapse in the living memory of almost everyone, Labour managed to keep the AAA rating. That George has lost it, despite pinning his reputation on keeping it and after chiding Labour for being put on "negative outlook" looks like a truly spectacular demonstration of political hubris.

Goldman Sachs

Yet another financial institution to voice their deep concerns over Osborne's self-defeating austerity experiment is the investment bank described by Matt Taibbi as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money". One would have thought that Osborne's banker friendly stance would have made him immune from criticism from such an organisation, but it is becoming clear, even to the bankers he is intent on serving, that Osborne's ideological austerity experiment is damaging the UK economy and curtailing their profit making potential.

Here's what Jim O'Neill, chairman of Goldman Sachs Asset Management had to say about Osborne's insistence that ruthlessly cutting expenditure is the only available course:

"Based on my business experience, if what you thought was not delivering what you expect to be the outcome, surely you have to change what you thought a little. At a minimum, a repositioning of the stance, if not a full change."
The IMF

Perhaps the most damning criticism of all comes from the IMF. Not only are they the world's most powerful pushers of neoliberal orthodoxy they have also been recipients of £40 billion from the UK since Osborne became chancellor in 2010.

The IMF are notoriously hesitant to criticise the countries that donate the funds they use to force neoliberal measures onto struggling economies (via neoliberalisation conditionalities on their "rescue" loans). This reticence hasn't stopped them from criticising Osborne's self-defeating austerity experiment though.

The Managing Director of the IMF Christine Lagarde has been implicitly criticising "Osbornomics" for well over a year, here's what she said in June 2011:

"For the advanced economies, there is an unmistakable need to restore fiscal sustainability through credible consolidation plans. At the same time, we know that slamming on the brakes too quickly will hurt the recovery and worsen job prospects. So fiscal adjustment must resolve the conundrum of being neither too fast nor too slow."
However, when the disastrous economic data continued flowing out of the UK throughout 2012 the criticisms from the IMF became more implicit. IMF research released in October 2012 demonstrated that Osborne's austerity strategy had harmed the UK economy by tens of billions more than Osborne had been predicting. This prompted Lagarde to offer this more explicit advice in December 2012:
"If growth should fall significantly below current projections, countries with room for manoeuvre should smooth their planned adjustment over 2013 and beyond... This includes the United Kingdom"

Lagarde isn't the only one at the notoriously right-wing IMF urging Osborne to slow down his austerity experiment. In January 2013 the IMF chief economist Olivier Blanchard really turned the screw on Osborne, stating that:
"We've never been passionate about austerity. From the beginning we have always emphasised that fiscal consolidation should be slow and steady. We said that if things look bad at the beginning of 2013 – which they do – then there should be a reassessment of fiscal policy"
If the most powerful right-wing organisation in the world is taking the extraordinary stance of explicitly advising George Osborne to abandon his ideological austerity experiment, despite the fact that Osborne supported Christine Lagarde's nomination as head of the IMF and has poured £40 billion into their coffers, there is obviously something desperately wrong with his agenda. The IMF simply don't criticise their major donors like that.


Osborne's responses

It doesn't matter who is criticising him, whether they are motivated by political expediency or by the overwhelming evidence that "Osbornomics" is failing disastrously; whether they come from the political left or the political right; Osborne's response is always the same: He talks of there only being one true course of action, uses rhetoric to dismiss economic concerns, cherry-picks fragments of economic data to create a misleadingly rosy interpretation of the state of the economy and invokes soundbytes like "difficult decisions" and "sticking the course".

The evidence is absolutely clear; due to his economic illiteracy George has been reading the economic map upside down. For nearly three years he's been steering the UK bus in the wrong direction, and his only response to all the passengers and bystanders desperately shouting that he's heading towards an economic cliff is to waffle some incoherent garbage about how "we mustn't lose confidence" and stick his foot even harder down on the accelerator.


The fact that he repeatedly fails to meet his own economic predictions, casually makes £1.2 billion calculation errors and steadfastly refuses to listen to reason is bad enough, but the worst thing of all is that he seems politically untouchable. It doesn't matter how much worse things get, David Cameron is such a weak leader that he simply won't lose face by giving his old Bullingdon Club chum the boot.

There is one potentially positive aspect to all of this carnage; people are re-learning the old lesson that it is impossible to "cut your way to growth" (especially when you have an ideologically driven and economically unqualified man in charge of fiscal policy). Of course the lessons from this debacle won't last forever, anyone that had ever picked up an economics textbook (of the kind not written by far-right neoliberal free-marketeers at least) would know that the "cut your way to growth" experiment has a long track record of failure, it's just that people forget the lessons of history like the Great Depression of the 1930s, as those old enough to actually remember the horrors of it gradually die off.

Of course, Centuries of inductive evidence isn't certain proof of anything, however, one would have to be as foolish as the man himself to expect an economic illiterate like George Osborne to be the one to break such a long track record of failure.


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2 comments:

Anonymous said...

Great article! Made me laugh. Need a giggle when every other month a loaf of bread goes up 10p or so.

Ron Wild said...

Why can we not find politicians of this calibre.
http://www.globalresearch.ca/50-truths-about-hugo-chavez-and-the-bolivarian-revolution/5326268

Or this,
http://www.globalresearch.ca/why-has-iceland-experienced-a-strong-economic-recovery-after-complete-financial-collapse-in-2008/5320866

Why do we just get the crooked, self-serving, corrupt, secrecy ridden politicians? Instead of seeking growth for growths sake, which is the definition of a cancer, lets ask, 'Do we want continued growth on a planet with finite resources?' or 'Should we all have equal access to the world's resources?'
Let, us the people, decide on how we want our future to unfold. The only qualification to be a politician is popularity. And we have allowed celebrity to conquer over competence. Let's turn it around, f these countries can do it with significantly less resources than us, what is this, once great, nation capable of?